Unlock Thousands in Savings: Historic Preservation Tax Credits Can Transform Your Heritage Home Renovation Budget

Owning a historic home comes with unique responsibilities and rewards. While these architectural treasures offer unmatched character and charm, renovating them can be expensive. Fortunately, historic preservation tax credits provide substantial financial relief for heritage homeowners, making restoration projects more affordable while preserving America’s architectural legacy.

Understanding Historic Preservation Tax Credits

The federal historic rehabilitation tax credit (HTC) program is an indirect federal subsidy to finance the rehabilitation of historic buildings with a 20 percent tax credit for qualified expenditures. This powerful incentive has leveraged over $116.34 billion in private investment to preserve 47,000 historic properties since 1976.

The program operates at both federal and state levels, with many states offering additional incentives. Texas Historic Preservation Tax Credit Program: The state tax credit program offers a 25 percent tax credit for the rehabilitation of historic, income-producing or non-profit use buildings. These combined benefits can significantly reduce renovation costs for qualifying properties.

Qualifying for Historic Tax Credits

To benefit from these credits, your home must meet specific criteria. To qualify for the 20 percent credit, a building must be a certified historic structure (buildings individually listed on the National Register of Historic Places or listed as a contributing building in a National Register or state or local historic district certified by the Secretary of the Interior.

Typically, resources must be at least 50 years old to qualify for National Register designation. However, there are exceptions for newer resources that can demonstrate exceptional significance. Properties must demonstrate historical significance in areas such as association with historical events, important persons, or architectural distinction.

How the Credits Work

The financial benefits are substantial. A project can claim HTC equal to 20% of qualified expenses. The tax credit directly reduces income taxes owed. Each dollar of tax credit offsets one dollar of taxes due. A project with $1 million of qualified expenses will generate $200,000 of HTC to offset $200,000 of federal income taxes.

Recent changes have modified how credits are claimed. Under the new law, the 20 percent tax credit for certified historic structures is retained and modified, requiring the 20 percent HTC to be claimed “ratably” over the five-year period beginning in the taxable year in which the building is placed in service.

Important Limitations for Residential Properties

Homeowners should understand key restrictions. Owner-occupied residential properties do not qualify for the federal rehabilitation tax credit. However, there are workarounds. When a personal residence is used also for business, the business use portion of the home (e.g., home office) would be eligible. Expenditures associated with common living areas, such as a kitchen, bedroom, living room, bathroom, etc., would not be eligible because they are not used exclusively for business.

Some states offer more flexibility. State tax credits are available for owner-occupied, as well as income-producing buildings. This makes it crucial to research both federal and state programs when planning your renovation.

Qualified Rehabilitation Expenditures

Not all renovation costs qualify for credits. A qualified rehabilitation expenditure must be “properly chargeable to a capital account.” In addition, the rehabilitated property must be depreciable and the depreciation for such property must be determined under I.R.C. § 168.

The work must meet substantial rehabilitation requirements and comply with the Secretary of the Interior’s Standards for Rehabilitation. These standards ensure that renovations preserve the historic character while allowing for modern functionality.

Working with Preservation Professionals

Successfully navigating historic preservation requirements demands expertise. Assemble a team of experienced, knowledgeable professionals to make your project run smoothly. These might include a preservation consultant who understands the application process, procedures, and Standards; an architect and structural and Mechanical, Electrical, and Plumbing (MEP) engineers who are experienced with historic buildings; and a real estate attorney and tax accountant who are familiar with the tax rules related to the HTC.

For Northern Virginia homeowners, EA Home Design brings valuable experience to historic home renovation projects. EA Home Design is a reputable name in the home improvement industry, serving homeowners from McLean to Leesburg and everywhere in between. We have earned recognition as a premier remodeling company, initially establishing our reputation in Fairfax County with our award-winning designs and craftsmanship. As part of our commitment to delivering beautiful spaces that exceed expectations in communities like Vienna, Reston, and Sterling, we have become one of the most decorated remodeling teams in the region.

The Application Process

The historic tax credit application involves a three-part process administered by the National Park Service and State Historic Preservation Offices. The National Park Service determines if a building is a certified historic structure by approving Part 1 of the application. Part 2 describes the rehabilitation work, and Part 3 certifies the completed project meets preservation standards.

Historic Preservation Certification Application submission and review are fully electronic. Hard copy applications are not accepted. This streamlined process helps expedite approvals while maintaining rigorous standards.

Beyond Tax Credits: Additional Benefits

Historic preservation tax credits offer benefits beyond immediate cost savings. Historic tax credit projects increase property values, draw new businesses, attract new residents, and enlarge the tax base. In addition to preserving historic buildings, the HTC revitalizes communities and spurs economic growth—all while returning more to the Treasury than it costs, $1.20 in tax revenue for every dollar invested.

Planning Your Historic Renovation

Success with historic preservation tax credits requires careful planning and professional guidance. As always, anyone interested in using the HTC is advised to consult an accountant, tax attorney, or other professional tax advisor regarding how the HTC and these recent changes may affect them.

EA Home Design’s team understands the complexities of historic renovations in Virginia. Born in 2009 from the vision of Ali Meshksar and Kevin Kamali, EA Home Design combines technical expertise with a trained eye for design. The partners’ 25 years in luxury remodeling built the foundation for a firm that delivers at the highest caliber. Each project receives focused attention from our skilled team, who approach their work with rare dedication and precision.

Historic preservation tax credits transform expensive heritage home renovations into financially viable projects. By understanding eligibility requirements, working with qualified professionals, and properly navigating the application process, homeowners can preserve architectural treasures while achieving significant tax savings. Whether you’re restoring a Victorian mansion or rehabilitating a colonial farmhouse, these incentives make historic preservation accessible and rewarding for dedicated property owners.